24th October 2019
Neil Woodford’s empire collapsed around him yesterday as he lost all three of his funds and declared he will shut down his firm entirely.
Just hours after being sacked from his flagship Equity Income fund, the 59-year-old quit as manager of Patient Capital Trust and his third vehicle, Income Focus.
It was clearly a case of jumping ship before he was pushed as the demise of his company has seemed inevitable for some time. He had been trying to cling on to his business since June, when Link, the Authorised Corporate Director (ACD), suspended his Equity Income fund after he ran out of cash to repay savers fleeing for the exit.He had hoped to reopen the fund in December, after selling some of its holdings, but Link decided yesterday that this would not be possible.
Investors’ losses in these 3 funds have been sizeable averaging about 66% compared to their previous high points over the last 4 years. Woodford’s reputation as a fund manager has been totally ruined.
The most galling aspect of this case is that Woodford has personally become very rich on the back of it all by paying himself substantial dividends totalling £10s of millions over the last few years.
The problem has been that he has completely flouted the FCA rules though he hasn’t arguably broken any of them. His fund Woodford Equity Income has an estimated 50% invested in private equity (unlisted companies) when the fund was closed in June. A maximum of 10% is officially permitted by the FCA but he got around the rules by investing in these shares on the Guernsey Stock Exchange. He also sold unquoted shares from Woodford Equity Income to his investment trust, Patient Capital, at a reputedly high overvaluation in order to reduce his private equity holdings to below the permitted 10% limit.
The remit of the Woodford Equity Income Fund was to invest in quoted equity income shares. Unfortunately, the fund didn’t invest in such shares. This is a blatant abuse of the rules. The FCA is very clear about this. You must follow the remit of the fund. This was totally misleading.
What this teaches us are many valuable lessons.
Firstly it is vital to always act with integrity. As Warren Buffet once said “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”.
The fact that you can do something well, for example fund management, does not of itself qualify you to be good at managing a fund management company. There is a world of difference between being a capable employee and a capable business owner.
Michael Gerber’s Book The E-Myth explains this concept really well. He describes people as suffering from an entrepreneurial seizure when they start up businesses just because they are good at their job. For example an excellent accountant may create an accountancy practice but fail because he has no previous experience of running a business.
Honesty is another very important personality trait. As Buffet said “Honesty is a very expensive gift, don’t expect it from cheap people”.
Do not invest in a fund based purely on the past reputation of the individual fund manager. Neil Woodford had a great record as a fund manager for Invesco Perpetual but he would have been subjected to management constraints. As owner of Woodford Capital he was his own boss and was pretty much able to make his own decisions.
The two largest financial services companies in the UK, St James’ Place and Hargreaves Lansdown, two FTSE 100 companies, both persuaded thousands of their customers to invest millions into Woodford funds in spite of the fact that their fund performance has been abysmal for 4 years. So what does that teach us about such companies? Do your own research. Don’t rely on others.
Woodford appears to be someone who has lost all sense of reality by believing all of the hype around his skills as a fund manager. His huge investment of £13.7 million in his property and land in Tetbury, Gloucestershire together with the building of a dressage arena for his 18 show horses shows you how carried away he has got with a super rich lifestyle. This highlights the importance of keeping your feet firmly on the ground. Delusions of grandeur? Yes probably.
So if you would like to invest your money in a fund managed by a professional fund manager with a good reputation for honesty and integrity, why not invest in the CCM Intelligent Wealth Fund today? You know it makes sense.
